Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. on Wednesday downplayed the concerns of several quarters that the economy may overheat, saying monetary authorities spend a lot of time studying the economy and are prepared to respond when risks arise.
Espenilla said in a statement ‘overheating’ happens when the present demands on the economy significantly exceeds its present capacity to provide. Overheating is often associated with above-trend economic growth and rapid inflation rate.
“Easy to say but always hard to discern since our economy is complex, with many moving parts. And the economic machine itself is constantly being improved through good investments. And it is subjected to outside shocks as well,” he said.
“So one cannot jump to a conclusion just by looking at one or two bits of information. We have to strategically examine a whole lot of information to tell us how the overall economy is doing and, no less important, how should we respond if at all,” Espenilla said said.
He said the Bangko Sentral was not only spending a lot of time understanding the economy but also was developing a dynamic game plan and executing effectively.
“So the economy doesn’t overheat. And we do this systematically and regularly. Every six weeks. We formally review the monetary policy stance via a two-stage evaluation process,” he said.
Espenilla said aside from monetary policy toolkit, the Bangko Sentral also had a considerable supervisory powers over the banking and financial system to prevent imprudent and reckless behaviors in individual entities and sectors that lead to unsustainable risk buildups.
“Then there are strategic long-term financial sector reforms, domestic capital markets, FX markets, payment systems, financial inclusion and literacy. All aimed at making our overall financial system function efficiently, resiliently and responsibly,” he said.
He said the Bangko Sentral was very focused and determined to pursue these important reforms. Espenilla, however, said the BSP welcomed careful independent analysis from some quarters.
International Monetary Fund resident representative to the Philippines Yongzheng Yang earlier said that despite the bright growth prospects, risks both from external and domestic fronts could hinder economic growth going forward.
From external front, he cited the impact of the US monetary policy tightening, wherein another rate hike could be possible before the end of the year. He said another rate hike could affect financial conditions globally, including the Philippines.
Yang also mentioned the sharp economic slowdown in China, the global financial market volatility and policy uncertainty in the US and the so-called Brexit, or the withdrawal of the United Kingdom from the European Unions.
He said the channels of spillovers to the Philippines from the external risks would be in the trade of goods and services, capital flows, asset prices and exchange rate.
On the domestic front, Yang mentioned the potential overheating due to rapid credit growth, natural disasters as well as security-related events.
The economy grew 6.7 percent in the first three quarters of the year, driven mainly by higher fiscal spending, robust domestic demand and investments. This is within the government’s target range of 6.5 percent to 7.5 percent this year.